New business allocation for buyer

[Unregistered]

Client (s corp) just bought new business. Gas Station.

Total price $205000. Buyer and seller needs to agree on allocation.
Buyer side: 150,000 for equipment
55,000 for Goodwill

Do buyer need to break it down for pupm (5 years) and canopy (5 years):IRS 2003-54)?
Is there any other allocation that will help buyer?

Seller has no objection to allocation! Buyer and seller will file 8594.

Thanks!

[Bees Knees]

I hope you are not trying the represent both the buyer and seller. The seller in this case would come out better if Equipment were $105,000 and Goodwill $100,000. Does the seller realize this?

As to the canopy and pumps, you would be OK to just lump all similar class life property together for one price, however, it would be ideal to provide as much break down of the price as possible.

[Bees Knees]

As to other allocations, isn't there any inventory that is being purchased? That is a COGS deduction for the buyer. How about land? That won't help the buyer because it is not deductible, but IRS knows that too. How about a non-compete? Is there a franchise agreement in place?

[Bird Legs]

Asset Allocation

of purchase price. The buyer & seller are supposed to make the same allocation.
$XX.XX for building $XX.XX for land $XX.XX for pumps $XX.XX for tank, etc.
The 2 forms should reflect the same amounts for each items.

[sea-tax]

Unregistered;

You may want to allocate as much as possible to good will because if you live in a state with sales tax you may have to pay use or sales tax on the amount of equipment. In washington state where I am from most accountants advise clients to allocate as much to good will and non-compete because they do charge sales tax on equipment as well as personal property tax.
You have to make some projections about the future. Is it better to have ability for sec 179 and depreciation or better to save sales and use tax and potentially personal property tax.
Most cases and usualy in a gas station it makes more sense to allocate as much a possible to non-compete and goodwill.

[Unregistered]

I hope you are not trying the represent both the buyer and seller. The seller in this case would come out better if Equipment were $105,000 and Goodwill $100,000. Does the seller realize this?

As to the canopy and pumps, you would be OK to just lump all similar class life property together for one price, however, it would be ideal to provide as much break down of the price as possible.

I am representing buyer. So allocation of buyer would come out better - $150,000 for equipment and 55,000 for goodwill, right?

Thanks

[Unregistered]

As to other allocations, isn't there any inventory that is being purchased? That is a COGS deduction for the buyer. How about land? That won't help the buyer because it is not deductible, but IRS knows that too. How about a non-compete? Is there a franchise agreement in place?

Yes there will be inventory. Inventory will be $95,000 - over and above purchase price that I mentioned. No land or building. As buyer would rent it. No non compete, franchise agreement etc.

Thanks!

[Unregistered]

Unregistered;

You may want to allocate as much as possible to good will because if you live in a state with sales tax you may have to pay use or sales tax on the amount of equipment. In washington state where I am from most accountants advise clients to allocate as much to good will and non-compete because they do charge sales tax on equipment as well as personal property tax.
You have to make some projections about the future. Is it better to have ability for sec 179 and depreciation or better to save sales and use tax and potentially personal property tax.
Most cases and usualy in a gas station it makes more sense to allocate as much a possible to non-compete and goodwill.

No sales tax on equipment as far as I know. This client is in Illinois. There for more to Equip and less to goodwill. I represent buyer.

[Unregistered]

As to the canopy and pumps, you would be OK to just lump all similar class life property together for one price, however, it would be ideal to provide as much break down of the price as possible.[/QUOTE]

So canopy & pump would be 5 years and equipment would be 7 years, right?

[Bees Knees]

Pub 946 says that Gasoline pump canopies that are not permanent structures are 5 year property.

As to gas pumps at a gas station, IRS Pub 946 says it is tangible personal property (equipment), but I don’t see any specific classification that says it is five year property. Generally, equipment that is not specifically identified is treated as 7 year property.

So I would treat the canopies as 5 year property and the pumps as 7 year property.

[veritas]

Pub 946 says that Gasoline pump canopies that are not permanent structures are 5 year property.

As to gas pumps at a gas station, IRS Pub 946 says it is tangible personal property (equipment), but I don’t see any specific classification that says it is five year property. Generally, equipment that is not specifically identified is treated as 7 year property.

So I would treat the canopies as 5 year property and the pumps as 7 year property.

Pumps, Tanks are 5 year property. Asset class 57.0 Includes Sec 1245 assets used in marketing petroleum and petroleum products.

[veritas]

By the way have you ever done accounting for gasoline stations? Your in for a real treat.

[Bees Knees]

Now I see it. That's the same class the IRS said applies to Rental Real Estate furniture and appliances.

Gas Pumps and rental property furniture. What a combo.